If you want to invest in the stock market but do not have high capital, you have the option of going into derivatives. It is a contract between two parties who will agree on the price of an asset at a specific period. Thus, the value of the derivative will depend on its underlying asset.
CFDs or Contracts for Difference are derivative products because they are always based on an underlying. There are CFDs on all types of assets: stocks, commodities, currencies… The leverage can go up to 20, so a variation of only 5 % of the underlying is enough to lose the entire amount. his bet.
Although the fees are quite low, the loss can exceed the initial capital, hence the importance of knowing CFD trading techniques well. To master even more this type of trading when starting out, it is possible to perform demos on award winning platforms.
Warrants are derivative products issued by banking establishments and listed on the stock exchange. They can be bought and sold in the same way as stocks. The issuer must ensure the liquidity and the valuation of the product. When you trade a warrant, you are speculating whether it will go up (call) or fall (put). The more the asset varies, the greater the gain can be over time. Thus, the value of the warrant depends on the price of its underlying asset, the volatility and the time remaining before the expiration date.
To obtain gains, it is therefore necessary to be right about the variation but also to be in the right timing. However, warrants are flexible: if your bet wins, you have a good chance of multiplying your winnings. However, if you bet wrong, you risk losing your entire bet. Thus, warrants allow you to earn a lot while risking a reasonable and limited amount.
Very similar to warrants, turbos have a value (strike) which depends on the underlying and its difference from the reference price of the turbo. In addition, it is associated with a lever. While the gains may be limited, so is the loss and cannot exceed the sum ofinvestment starting point.
The further difference with warrants is that there is no time value. Volatility is therefore not involved. This type of derivative is more suitable for investors who have an aggressive risk profile, who are looking for products with high leverage and who have experience in complex and risky products.